France buys another British business
International Power was created in October 2000, following the demerger of National Power. The global independent power generator has interests in over 70 gigawatts of power-generation capacity around the world, including 37 power stations in 18 countries.
As I write, International Power shares are up nearly 13p to almost 417p, valuing the group's equity at over £21 billion. This follows an agreed cash bid of 418p per share from Electrabel, a subsidiary of French energy giant GDF Suez (GDF stands for Gaz de France).
However, this is more of a bear hug than a full-on bid, as GDF Suez has owned 70% of International Power since it merged some of its international operations into the British group via a reverse takeover announced in August 2010 and completed in February 2011.
What's more, today's 418p-a-share offer is a 7.2% improvement on an indicative offer of 390p per share revealed on 29 March and promptly rejected by International Power's independent directors. Another bonus for shareholders is they retain the right to receive the final dividend of 6.6 euro cents, worth another 5.4p per share.
With world energy consumption having fallen only once in the past 30 years (in recession-hit 2009), the energy market has been anything but boring in recent years. In fact, thanks to soaring energy costs, this has been the go-go sector in what has been a disappointing decade for investors.
Even so, as bids go, this is a big one, as International Power is the 24th-largest member of the blue-chip FTSE 100 index of elite British businesses, just behind big bank Lloyds Banking Group.
In my view, International Power shareholders have done pretty well out of this deal, selling their shares for nearly 16 times earnings. As minority investors, they must have known that GDF Suez would eventually ease them out. Today's offer represents a premium of nearly 21% to the sub-346p at which the shares closed on 29 February, before GDF's initial market announcement.
Based on today's market reaction, this is very much a done deal, and will be funded from GDF's cash pile and existing credit facilities. Indeed, I suspect it will be a mere formality for GDF to gain the necessary three-quarters (75%) of minority shareholders to vote in favour of its scheme of arrangement. More details of the offer will be posted to shareholders by Monday, 14 May.
Thus, GDF has spent almost £8 billion to buy out International Power's minority investors, as well as all outstanding convertible bonds and share options. Nevertheless, this is a modest morsel to one of Europe's biggest corporations, with 218,900 employees and revenues of €90.7 billion in 2011.
No doubt this latest corporate land-grab by a French Titan could stir up some anti-European sentiment. However, it looks like a win-win deal to me, as investors in the British plc get nearly £8 billion in cash to invest elsewhere, while GDF increases its exposure to fast-growing developing markets.
However, follow this acquisition, there will be only two London-listed big energy companies left.
Of the Big Six energy suppliers that supply 99% of our domestic energy, EDF is French-owned, E.ON and npower are German-owned, Scottish Power is Spanish-owned, while Scottish & Southern Energy and British Gas owner Centrica are UK-listed.
Given ongoing overseas interest in the UK's energy assets, it seems likely that SSE and Centrica will fall to foreign bidders in due course. Only time will tell, so watch this space!